Equilibrium Involuntary Unemployment Under Oligempory
We show that equilibrium involuntary unemployment emerges in a multi–stage game model where all market power resides with firms, on both the labour and the output market. Firms decide wages, employment, output and prices, and under constant returns there exists a continuum of subgame perfect Nash equilibria involving unemployment and positive profits. A firm does not undercut the equilibrium wage since then high wage firms would attract its workers, thus forcing the undercutting firm out of both markets. Full employment equilibria are payoff dominated by unemployment equilibria, and the arguments are robust to decreasing returns.
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- Larry E. Jones & R. E. Manuelli, 1987.
"The Coordination Problem and Equilibrium Theories of Recessions,"
753, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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- Heal, Geoffrey, 1981. "Rational rationing and increasing returns an example," Economics Letters, Elsevier, vol. 8(1), pages 19-27.
- repec:cor:louvrp:-536 is not listed on IDEAS
- Madden, Paul & Silvestre, Joaquim, 1991. " Imperfect Competition and Fixprice Equilibria When Goods Are Gross Substitutes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 93(4), pages 479-94.
- Jean-Pascal Benassy, 1989. "Market Size and Substitutability in Imperfect Competition: A Bertrand-Edgeworth-Chamberlin Model," Review of Economic Studies, Oxford University Press, vol. 56(2), pages 217-234.
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